Dow Dive of 46 Is Biggest in 3 Months

The stock market took its steepest plunge in three months Thursday, with recession anxiety spreading to Wall Street as bonds and the dollar finished higher.

The Dow Jones industrial average fell 46.47 points to close at 2,458.27, a day after a key official barometer suggested that a U.S. economic slowdown might be under way. The stock market plunge followed a 21.63-point drop on Wednesday and was its sharpest decline since March 17.

"Private investors are thinking that a recession may be more likely than they perceived earlier in the year," said Harold C. Nathan, a vice president and portfolio manager with Wells Fargo Bank in San Francisco.

The jitters come during a time in which it has been hard to tell the bad economic news from the good.

In contrast to stocks, bond prices rallied Thursday, as investors looked forward to lower interest rates in a cooling economy. The dollar also gained against other national currencies, despite rising interest rates in Europe that ordinarily would undermine the value of dollar-denominated investments.

Recession Fears

Until recently, investors have been upbeat about economic prospects in light of forecasts that a slump could be avoided, especially if inflation remains under control. But the psychology affecting stocks turned gloomier with Wednesday's release of the government's index of leading economic indicators. The gauge for May took its worst dive since November, 1987. It was the third decline in the last four months.

"People are starting to think that maybe we're not going to have a soft landing, maybe we're going to have a recession," said Eric McCluskey, a research associate with the investment firm of Bateman Eichler, Hill Richards Inc. in Los Angeles.

As recently as last Friday, news that orders for durable goods such as cars and equipment fell in May was greeted as a happy sign that interest rates would fall, but with little economic damage. On that day the Dow Jones average shot up 49.7 points.

But Wednesday's release of the leading indicators--documenting a sweeping fall-off in money supply, consumer confidence, orders for consumer goods and other measures of economic health--seemed to take a toll on the confidence of shareholders.

Fear of recession "definitely carried over from yesterday," McCluskey said of Thursday's stock nose dive.

On the New York Stock Exchange Thursday, declines led advances 1,319 to 263 on volume of 167,100,000 shares, up from 158,470,000 shares Wednesday.

In addition to fears of an economic slump, some analysts said the stock market was affected by a wave of institutional investors seeking to cash in profits at the end of the quarter, a gambit known as "window-dressing."

"There's a lot of institutional selling going on," McCluskey said.

Thomas Stevens, chief investment officer for Wilshire Asset Management in Santa Monica, attributed the stock market's wild swings in recent days to doubts about which way the economy is headed. In such a climate, he maintained, uncertain investors are more likely to react in a stampede with each new economic indicator, even though no single statistic can be expected to reveal what the future holds.

"I think investors would rather have a consensus of recession or a consensus of growth," Stevens said. "That would tell them what to do."

On Thursday, losers among the blue chips included International Business Machines, down 2 3/8 at 111 1/2; General Electric, down 1 at 52 3/8; USX, down 7/8 at 34 3/4; Eastman Kodak, down 1 3/8 at 47 5/8, and American Telephone & Telegraph, down 5/8 at 35 1/2.

Banc One, which won the bidding to acquire the failed banks formerly operated by MCorp, led the active list, up 4 7/8 at 32 7/8. Amdahl, the most active American Stock Exchange issue, fell 3 1/2 to 16 5/8. By contrast, L.A. Gear rose 2 1/2 to 60. The footwear company posted sharply higher quarterly profits and said its order backlog continued to increase.